You’ve heard of BitCoin and maybe Ethereum or LiteCoin. But how about FoldingCoin, Fuzzballs, RawCoin, Kin, or Jin. Those are just a few of the over 1,400 different totally made up cryptocurrencies trading around the world today, according to coinmarketcap.com. Some of them are valued at a total of only a few hundred dollars, but most are have market capitalizations in the millions of dollars with thirty-four currently “valued” in the billions of bucks. Bitcoin is number one at about $190 billion (as of 1:18 pm ET on January 25, 2018).
There are even a few currencies that are honest enough to tell you they are totally made up like Useless Ethereum Token (its website is well worth a visit) that promises that their cyber coin will not fluctuate in value because they “aren’t worth anything to start with.” Yet, people paid $300,000 to buy them.
Creating Cryptocurrencies must be a con artists dream. They are apparently legal (although governments are starting to get worried – particularly about their tax revenue) and yet any idiot with a computer and some open source contract code from GitHub can start one. When something is easy to create and offers ludicrously large returns, people catch on quickly. Who knows, by this time next year there could be 14,000 cryptocurrencies (or there could be none).
In the early 1600s, the Dutch didn’t have computers, but they did have fertile soil and an attraction to pretty flowers. The most attractive were the newly introduced tulips from the mysterious Ottoman Empire. Because tulips popular bulbs traveled long distances and were in short supply, prices were naturally high. Even though they grew well in Dutch soil, propagating new bulbs took years, so the supply remained constrained until the supply of bulbs eventually exceeded the demand and prices plummeted from the equivalent of hundreds of thousands of dollars per bulb today to a few dollars (pretty close to today’s prices).
For a variety of reasons, the recent demand for cryptocurrencies exceeded the perceived supply. Because Bitcoin and the like have no underlying assets to help define their worth, no one can assign a real value. That leaves it totally up to market forces (supply and demand) to establish prices. Therefore, should supply of cryptocurrencies continue to increase without a commensurate increase in demand, prices must fall.
Outside of a few criminals, privacy freaks, and conspiracy theorists, massive demand from the general public is unlikely to manifest itself since there is very little practical use for cryptocurrencies. Can you pay your mortgage with them? Will your grocery store take them? According to the latest list of merchants who accept Bitcoin, the only place I might spend some would be one of a very few Subway restaurants. In addition to a sandwich, I could also be creating a taxable event that I would need to report to the IRS (seriously – read this).
Why wouldn’t I use a credit card for my sandwich or, if I want to remain anonymous, that other currency, dollars? I cannot find a problem which Bitcoin or any other cryptocurrency addresses better than our current monetary options. So, why would I (or any other typical consumer) need or want any of them?
That leads me to the question asked in the title: What are Cryptocurrencies worth?
Since the current total market value of the 1,400 “coins” listed at coinmarketcap.com is $552,053,432,737, the correct answer is somewhere between zero and about half a trillion dollars.